Wavelet Methods in PDE Valuation of Financial Derivatives

  • M.A.H. Dempster
  • A. Eswaran
  • D.G. Richards
Conference paper
First Online:
Part of the Lecture Notes in Computer Science book series (LNCS, volume 1983)

Abstract

We investigate the application of a wavelet method of lines solution method to financial PDEs. We demonstrate the suitability of a numerical scheme based on biorthogonal interpolating wavelets to financial PDE problems where there are discontinuities or regions of sharp transitions in the solution. The examples treated are the Black Scholes PDE with discontinuous payoffs and a 3-dimensional cross currency swap PDE for which a speedup over standard finite difference methods of two orders of magnitude is reported.

Keywords

Collocation Point Wavelet Method Biorthogonal Wavelet Erence Scheme Financial Derivative 
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Copyright information

© Springer-Verlag Berlin Heidelberg 2000

Authors and Affiliations

  • M.A.H. Dempster
    • 1
  • A. Eswaran
    • 1
  • D.G. Richards
    • 1
  1. 1.Centre for Financial Research Judge Institute of ManagementUniversity of CambridgeUK

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